Trade war tactics, Part 8: Pressuring opponent until cracks appear to reveal weak points for attack.

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(Blog No. 1xx).

The engagement in the trade war between two opponents will reveal some weakness in each of both opponents. Each will do its best to break the other’s strength through the discovered weak points.

Now USA has won the first round of its trade war against China but it has to discover and exploit the weak points of Chinese economy to successfully pursue that war. An analysis of this trade war is offered here following a summary of its time line.

#trade war, #weak point,

Trade war tactics, Part 8: Pressuring opponent until cracks appear to reveal weak points for attack.

1. Time line of current trade war.

2018 January 23:

30% tariff on solar panels (most of them are from China) reducing to 15% after four years. 20% tariff on washing machines for the first 1.2 million units imported during the year.

2018March 22:

President Trump relied on Section 301 of the Trade Act of 1974 to propose tariffs on additional 60 Billion worth of Chinese export (over 1,300 categories including aircraft parts, batteries, flat-panel televisions, medical devices, satellites, and various weapons) to USA as “a response to the unfair trade practices of China over the years“, including theft of U.S. intellectual property.

2018 March 30:

On Monday, Brussels launched a safeguard investigation into how it could combat surges of steel imports… from inflows of Japanese, Chinese, Turkish and Russian steel that would be diverted away from the U.S. [1]

Trump responded saying that he was considering another round of tariffs on an additional $100 billion of Chinese imports as Beijing retaliates. The next day the World Trade Organization received request from China for consultations on new U.S. tariffs

2018 June 15,

United States impose a 25% tariff on $50 billion of Chinese exports ( with “industrially significant technology”). $34 billion start July 6, with a further $16 billion to begin at a later date

2018 July 13:

“The S&P 500 on Friday hit a four-month high … the Nasdaq close at a record high. The S&P 500, Nasdaq and the Dow Jones Industrial Average were also tracking for their second straight week of gains.” [2]

2018 July 17:

“Since the White House announced the first tariffs — on washing machines and solar cells on Jan. 22 — the Shanghai Index of Chinese stocks is down nearly 20 percent, while the S&P 500 is off less than 1 percent… Since the end of March,..the yuan has slid nearly 7 percent, again demonstrating the impact the trade war…” [3]

As at 2018 July, America has been the winner in the current trade war.

China retaliated immediately with new taxes of 5% to 10% on $60 billion of US goods such as meat, chemicals, clothes and auto parts.

2018 October 03:

The trade war is accompanied by a war maneuvering in the South East Asian sea. Chinese Navy unsuccessfully tried to cause a collision at sea with USS Decatur. USS Decatur (DDG-73) is an Arleigh Burke-class destroyer in the United States Navy, of the same class as USS Fitzgerald (DDG-62) which collided with a Phillipine registered ship MV ACX Crystal near Tokyo around 2017 June 17; US Navy had also suffered another collision between USS McCain (DDG) and Liberian merchant ship on 2017 August 21 [3b].

2018 October 08:

China has lowered its required reserve ratios, meaning its banks run low on cash. The problem began some time 2 years ago, before the beginning of the current trade war [4,5]. China now directs its activities to domestic home construction market [6].

2018 October 03:

China Wants To End Trade War [7],

2018 October 11:

China needed to borrow money and launched debt offering [7b, 7c, 7d].

2. American economy is self-sufficient while Chinese economy is all relying on trades.

After the trade war and the take jobs home movement, US economy has become strongest in 40 years. China is not doing well with import and export restrictions by the US [8,9].

3. China is running out of financial liquidity.

That is a sign of over-investment on foreign-dependent economic activities that has been non-voluntarily throttled down.

Currently the US may consider that solar panels and washing machines should provide an opportunity for American manufacturing industry. The current tariff are designed to give American solar panel and washing machine makers a chance to establish themselves. Tariffs on other Chinese junks will guide American consumers toward the use of more durable, environment friendly goods.

5. Chinese tariff on American soybeans is ineffective

They cannot reduce the consumption by Chinese people. China needs cheap soybeans from the US more than the US needs to sell them to China.

Conservation requires an increase in soybean prices: rising demand for meat has driven soy production to nearly 10 times what it was 50 years ago. A full 80 percent of the world’s soybean crop is fed to livestock.[10]

Sixty percent of all soybeans grown worldwide are now exported to China, [11]

6. Chinese tariff on American LNG has been ineffective

It cannot reduce the consumption of US LNG. Rather Chinese purchasers of US LNG ship their cargo to Europe, swap for a non-US cargo and ship the latter to China to avoid any tariff. In this way Europe will consume US LNG while sending its purchased LNG to China.

7. Chinese tariffs on American luxury goods are ineffective

Chinese tariffs on American luxury goods like hand phones, designer hand bags, airplanes, cars, etc…[12] only turn them into items for “status symbol” and may ultimately promote their sale to Chinese super-rich people.

8. Plotting new course for economic attack.

a- Boycotting marketers of environmentally unfriendly products.

The tariff on washing machines also put a brake on the wasteful short life cycle assigned by Americans on their washing machines. The Green and the conservation movement are now conspicuously absent in their protest against the wasteful American habits of retiring their washing machines early.

The rethink on this wasteful practice may also encourage a reduction of American thirst on Chinese throw away (short life) junks. Reduction on the consumption of short life junks may even activate some conservation laws requiring products to be environment friendly and wear resistant, properties Chinese junks don’t have.

b- Boycotting spying equipment marketers.

The rethink on electronic espionage also dampen enthusiasm for Chinese electronic equipment. [12b-12i]

c- Boycotting markets with non-reciprocal access.

Americans have to wake up to any unfair trade practice and uneven playing fields in trade. [13]

d- Growing maize instead of soybeans

This move protects the environment.

E15 petrol has 15% alcohol content which comes from maize. In this way soybean farmers are less effected by any fluctuation in the soybeans market, they can rotate crops and produce maize instead of soybeans. Hence farmers can demand substantially higher price for soybeans.

e- Establishing alternative competing foreign manufacturing bases

Trump’s government even call for manufacturers exporting to US to move out of China to avoid tariff. [14,14b]

9. Employing patriotism to support the trade war.

President Trump can ride on the patriotism wave for his economic war and direct consumers to consume goods from allies while skipping goods from potential adversaries. [15].

9. Conclusions

America is winning on most economic fronts. It should press on with this war to force China to live within the accepted rules of the international world.

With its stronger economic position, America can require China to rectify both its unfair trading policy and its policy of land grabbing from its weaker neighbors and trading counter-parties [16,17,18,19,20,21,22]. This will earn praise on America and may reverse the erosion of its international standing for the last 40 years.